Long-Wave Theory

Conceptual Overview

The best-known long-wave theory is that of Kondratieff waves. Soviet economist Nicolai Kondratieff theorized that economies undergo (roughly) 50-year economic supercycles. There are many versions of this theory, but most follow at least part of the following outline: Long-term growth is spurred by the coalescence of minor technological innovations that produce a new sector that propels general prosperity (e.g., railroads, automobiles, telecommunication, and information technology). Innovation and investment activities overconcentrate on this new technology, which eventually becomes widely adopted and loses its enormous growth potential. Disproportionate investments in this [Page 832]innovation may create overcapacity, making the economy vulnerable to downsizing. Businesses are expected to have been reluctant to change or innovate during prosperous times, and their old operational models will be strained to find new markets or improve productivity. When the leading sector's life cycle reaches maturity and declines, the economy will have lost its underlying engine of growth. Stagnation will begin and it will continue until a new technology is found.

Typically, analysts argue that the capitalist system entered a downturning phase of a Kondratieff wave in the 1970s (approximately the time of the stagflation crises and developing world debt crises) and an upturn in the early 1990s. Many observers argue that a sustained period of economic decline is ahead.

A second well-known long-wave theory is Kuznets swings. Simon Kuznets proposed 20to 25-year cycles in long-term production and price levels, although the focus of his work was on industries rather than the aggregate economy. Like Kondratieff waves, these swings were attributed to the introduction, growth, and saturation of a new technology, market, or resource in specific industries and to corresponding cycles of reinvestment.

Kondratieff waves and Kuznets swings offer two examples of long-wave economic theories, but the use of long-wave theory extends well beyond predicting periods of economic prosperity or stagnation. Just as short-term economic fluctuations are often linked to changes in the political, social, and demographic environment, so are long-term ones. Many historians and social scientists have attempted to show how long-term economic cycles cause and are caused by other long-term societal cycles.

Many political historians have linked the interaction of economics and demography to cycles of social conflict and political stability. This theory begins with the observation that population and prices have risen in tandem historically. The world system begins the cycle with a low population relative to the physical and social infrastructure available to absorb human resources. Populations begin to recover, as the disease, economic, or social conditions that caused the last population recession abate. Population growth raises aggregate demand and prices, drives down the purchasing power of wages, spurs trade and migration, and ultimately results in an abundance of humans relative to society's capacity to absorb them. These kinds of theories generally see the population boom as being punctuated by war or revolution (which can result from too many people, especially elites, becoming frustrated and mobilized by decreased social opportunities) or plague (resulting from overpopulation and the international transmission of disease). David Fischer and Jack Goldstone offer noted examples of this tradition.

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